The nonprofit Center for Original Oxygen (CO2) has decided to concentrate its ef

Question

The nonprofit Center for Original Oxygen (CO2) has decided to concentrate its efforts to one particular means of reducing carbon dioxide thereby enabling a return to the original proportion of oxygen in the environment. Several alternatives have been researched and the cost and benefits have been determined. They have determined that a good representative measure (surrogate) of benefits is the expected cost savings from lower expenditures on respiratory disease medical expenses. The next step is to evaluate alternative methods of reducing carbon dioxide and choose one to support. The data below has been gathered to assist in a choice. (Data are completely fictitious) Perform a financial analysis for CO2 to determine which one should be chosen from a financial perspective. Time span 10 years MARR 7% Investment Annual Gross Benefits Annual Cost of Operations Electric Cars $80,000 $80,000 $50,000 Home Fuel Cells $150,000 $100,000 $28,000 Coal conversion $100,000 $70,000 $35,000 Oil conversion $90,000 $80,000 $30,000 CO2 capture and storage $120,000 $80,000 $46,000 The nonprofit Center for Original Oxygen (CO2) has decided to concentrate its efforts to one particular means of reducing carbon dioxide thereby enabling a return to the original proportion of oxygen in the environment. Several alternatives have been researched and the cost and benefits have been determined. They have determined that a good representative measure (surrogate) of benefits is the expected cost savings from lower expenditures on respiratory disease medical expenses. The next step is to evaluate alternative methods of reducing carbon dioxide and choose one to support. The data below has been gathered to assist in a choice. (Data are completely fictitious) Perform a financial analysis for CO2 to determine which one should be chosen from a financial perspective. Time span 10 years MARR 7% Investment Annual Gross Benefits Annual Cost of Operations Electric Cars $80,000 $80,000 $50,000 Home Fuel Cells $150,000 $100,000 $28,000 Coal conversion $100,000 $70,000 $35,000 Oil conversion $90,000 $80,000 $30,000 CO2 capture and storage $120,000 $80,000 $46,000

Explanation / Answer

From a financial perspective, Home Fuel Cells should be selected as its NPV is the greatest at 355,697.87

Electric Cars Home Fuel Cells Coal Conversion Oil Conversion CO2 capture and storage Discount factor (1+7%)^t t Cash Flows Discounted CF Cash Flows Discounted CF Cash Flows Discounted CF Cash Flows Discounted CF Cash Flows Discounted CF 1 0         (80,000)               (80,000)         (150,000)             (150,000)         (100,000)             (100,000)        (90,000)               (90,000)         (120,000)             (120,000) 1.07 1           30,000                 28,037              72,000                 67,290              35,000                 32,710           50,000                 46,729              34,000                 31,776 1.1449 2           30,000                 26,203              72,000                 62,888              35,000                 30,570           50,000                 43,672              34,000                 29,697 1.225043 3           30,000                 24,489              72,000                 58,773              35,000                 28,570           50,000                 40,815              34,000                 27,754 1.31079601 4           30,000                 22,887              72,000                 54,928              35,000                 26,701           50,000                 38,145              34,000                 25,938 1.402551731 5           30,000                 21,390              72,000                 51,335              35,000                 24,955           50,000                 35,649              34,000                 24,242 1.500730352 6           30,000                 19,990              72,000                 47,977              35,000                 23,322           50,000                 33,317              34,000                 22,656 1.605781476 7           30,000                 18,682              72,000                 44,838              35,000                 21,796           50,000                 31,137              34,000                 21,173 1.71818618 8           30,000                 17,460              72,000                 41,905              35,000                 20,370           50,000                 29,100              34,000                 19,788 1.838459212 9           30,000                 16,318              72,000                 39,163              35,000                 19,038           50,000                 27,197              34,000                 18,494 1.967151357 10           30,000                 15,250              72,000                 36,601              35,000                 17,792           50,000                 25,417              34,000                 17,284 Total               130,707               355,698               145,825               261,179               118,802

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